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Exam 18: Multinational Financial Management

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Question 1

True/False

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The cash flows relevant for a foreign investment should,from the parent company's perspective,include the financial cash flows that the subsidiary can legally send back to the parent company plus the cash flows that must remain in the foreign country.

A) True
B) False

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False

Question 2

Multiple Choice

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Suppose in the spot market 1 U.S.dollar equals 1.5500 Canadian dollars.6-month Canadian securities have an annualized return of 6.00% (and thus a 6-month periodic return of 3.00%) .6-month U.S.securities have an annualized return of 6.50% and a periodic return of 3.25%.If interest rate parity holds,what is the U.S.dollar-Canadian dollar exchange rate in the 180-day forward market? In other words,how many Canadian dollars are required to purchase one U.S.dollar in the 180-day forward market? Do not round the intermediate calculations and round the final answer to four decimal places.

A) 1.9019
B) 1.5308
C) 1.2525
D) 1.5462
E) 1.1597

F) B) and C)
G) A) and E)

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Question 3

Multiple Choice

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Suppose 144 yen could be purchased in the foreign exchange market for one U.S.dollar today.If the yen depreciates by 13.0% tomorrow,how many yen could one U.S.dollar buy tomorrow?

LIBOR is an acronym for London Interbank Offered Rate,which is an average of interest rates offered by London banks to smaller U.S.corporations on all deposits.

When the value of the U.S.dollar appreciates against another country's currency,we may purchase more of the foreign currency with the U.S.dollar.

When considering the risk of a foreign investment,a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification.

When the value of the U.S.dollar appreciates against another country's currency,we may purchase more of the foreign currency with the U.S.dollar.

A currency trader observes the following quotes in the spot market: 1 U.S.dollar =1.21 Japanese yen 1 British pound =2.25 Swiss francs 1 British pound =1.65 U.S.dollars Given this information,how many yen can be purchased for 1 Swiss franc? Do not round the intermediate calculations and round the final answer to four decimal places.

Suppose a foreign investor who holds tax-exempt Eurobonds paying 7.00% is considering investing in an equivalent-risk domestic bond in a country with a 28.00% withholding tax on interest paid to foreigners.If 7.00% after-tax is the investor's required return,what before-tax rate would the domestic bond need to pay to provide the required after-tax return?

If one Swiss franc can purchase 0.80 U.S.dollar,how many Swiss francs can one U.S.dollar buy?

If one U.S.dollar buys 1.58 Canadian dollars,how many U.S.dollars can you purchase for one Canadian dollar?

Blenman Corporation,based in the United States,arranged a 2-year,$1,000,000 loan to fund a project in Mexico.The loan is denominated in Mexican pesos,carries a 7.50% nominal rate,and requires equal semiannual payments.The exchange rate at the time of the loan was 5.75 pesos per dollar,but it dropped to 5.10 pesos per dollar before the first payment came due.The loan was not hedged in the foreign exchange market.Thus,Blenman must convert U.S.funds to Mexican pesos to make its payments.If the exchange rate remains at 5.10 pesos per dollar through the end of the loan period,what effective annual interest rate will Blenman end up paying on the loan? Do not round the intermediate calculations and round the final answer to two decimal places.

Exchange rate quotations consist solely of direct quotations.

LIBOR is an acronym for London Interbank Offered Rate,which is an average of interest rates offered by London banks to smaller U.S.corporations on all deposits.

If one U.S.dollar buys 0.61 euro,how many dollars can you purchase for one euro?

In 1985,a given Japanese imported automobile sold for 1,476,000 yen,or $8,200.If the car still sold for the same amount of yen today but the current exchange rate is 138 yen per dollar,what would the car be selling for today in U.S.dollars?

In 1985,a given Japanese imported automobile sold for 1,476,000 yen,or $8,200.If the car still sold for the same amount of yen today but the current exchange rate is 149 yen per dollar,what would the car be selling for today in U.S.dollars?

Suppose one British pound can purchase 1.74 U.S.dollars today in the foreign exchange market,and currency forecasters predict that the U.S.dollar will depreciate by 12.00% against the pound over the next 30 days.How many dollars will a pound buy in 30 days?

If one U.S.dollar sells for 0.41 British pound,how many dollars should one British pound sell for?

Exchange rate quotations consist solely of direct quotations.